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Transocean Is Still Not a 'Buy': Analyst

Exactly one year ago, on April 20th, 2010, shares in Transocean - already listed on the NYSE - started trading on the Swiss stock exchange.

A boat works uses a protective boom to collect oil that has leaked from the Deepwater Horizon wellhead in the Gulf of Mexico.
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A boat works uses a protective boom to collect oil that has leaked from the Deepwater Horizon wellhead in the Gulf of Mexico.

With its dual listing, the world's biggest offshore drilling company sought to drum up interest among Swiss and European investors. And interest it got – but not for its listing.

The 20th of April turned out to be the beginning of a nightmare for the Swiss-based company.

The oil rig "Deepwater Horizon" that exploded in the Gulf of Mexico was owned by Transocean, but operated by BP . The disaster left 11 workers dead and led to one of the worst oil-spills in history.

Transocean's share price was hit by two factors, according to Jens Zimmermann, senior equity analyst at ABN Amro Private Banking in Zurich.

First, the costs and liabilities linked to the explosion of the rig and then, the oil spill.

So far, the question of liability has not been solved. BP is shouldering most of the liabilities, but Transocean and Halliburton could see punitive damages of around $1-$2 billion dollars, Zimmermann told CNBC in an interview.

The damage to the company's reputation was another key reason for the stock slide: "Oil firms will think twice about which rig contractor to work with in the future after the Gulf of Mexico disaster," he said.

Transocean's share price has been on a roller coaster ride since the fateful day in April. Within the first 6 weeks after the explosion, the company's share price and market value feel almost 40 percent.

In the course of 2010, shares recovered but volatility persisted as new details and allegations about the explosion emerged. Exactly one year after the explosion, shares in Transocean are still down more than 30 percent on the SMI; however, they have risen almost 4 percent since the beginning of 2011.

The NYSE-listed shares of Transocean traded as low as $ 42.58 on June 9th, 2010 and have since staged an impressive rally. They now hover around the $ 75 mark.

Zimmermann, who has a "hold" rating on Transocean, said the stock is still not attractive.

"While the litigation risks in connection with the Gulf disaster are an ongoing concern, the key reason why the stock is not a 'Buy' is that the current cycle favors shallow water jack-up drilling," he said.

"Transocean is specialized on deepwater drilling, where it will take until 2013 for the market to kick-start again." Zimmermann said.

The deepwater drilling industry has also seen the entry of a number of new players in the market, which is putting pressure on rates.

Zimmermann prefers rival drilling companies Noble Drilling and Ensco , which operate in shallow-water drilling and are set to benefit from the pick-up in drilling activity Asia, Saudi Arabia and the Gulf of Mexico.

Disclosure: Jens Zimmermann has no personal, company holdings and company dealings in any of the stocks mentioned in this article.